Mainers are not well served by the current power-sharing agreement with other New England states, which is driving up costs and making the state overly dependent on natural gas, and something’s got to change, according to a just-released report from the Public Utilities Commission.

In its report, the PUC lays out three options: changing the rules of the regional agreement with other New England states; creating an independent Maine system; or teaming up with Eastern Canada.

PUC Chairman Kurt Adams wouldn’t say Wednesday which option he prefers, but said the status quo is not acceptable.

Gov. John Baldacci agreed.

“Maine has not been treated fairly and our people pay the price with higher electricity rates,” the governor said. “We must develop energy policies that protect Maine ratepayers and stabilize the electricity market.”

Adams said he could argue convincingly for all three options, but wouldn’t tip his hand until asked by the Legislature’s Utilities and Energy Committee, which will get the report in January. The full Legislature will have to vote on changing or getting out of the agreement.

The goal of a new setup, he said, is not just to lower costs to consumers, but to also make rates more stable, reduce the state’s carbon emissions as promised in the Regional Greenhouse Gas Initiative adopted by Maine earlier this year, and rely less on natural gas to produce electricity and more on renewable resources such as wind power.

Maine is in a unique position to help create renewable sources and act as a conduit for renewable or low-carbon energy from Canada, including hydro, wind and nuclear power, but the rules need to change to encourage those investments, the report said.

The current setup is a creation of market deregulation, which forced utilities out of the business of electricity generation and instead left them only in charge of delivery. The idea was that customers would shop around for the best electricity rates – a move that was supposed to lower the cost but has not.

Under deregulation, Maine consumers get their electricity supply from a regional wholesale power market rather than utility owned power plants, and rely upon the ISO-NE (Independent System Operator-New England) as the primary agent to administer the market.

ISO-NE, which also manages and dispatches the transmission system, is responsible for the reliability of the electricity system and takes the lead on transmission system planning.

The PUC says the arrangement is forcing Maine residents to pay for transmission lines in more-developed areas of New England, including Massachusetts and Connecticut. It estimates Mainers will pay $500 million in additional costs, for which they get no benefit, from 2008 to 2012, if the state sticks with the current ISO-NE agreement.

On the other hand, if there is a change in the transmission plan that would directly benefit Maine, connecting wind power generated in Aroostook County into the grid, for example, or building transmission lines here to tie in electricity from Canada, the cost analysis shifts more to Maine’s favor.

The report also notes Central Maine Power is proposing extensive upgrades to its transmission system between now and 2017 – the cost of which would be shared by other New England states under the current agreement.

Adams said changing the rules of the existing game will not be easy because it would essentially shift costs onto other New England states. “It is an extraordinarily powerful force,” when all six New England states work together, he said, but when the relative economic positions of the states are threatened that creates “gridlock.”

Adams said the downside to breaking away from ISO-NE all together is it would essentially derail deregulation since Maine would not constitute a big enough market, either by itself or with Eastern Canada, to allow consumers to shop around for the best energy prices.

In reality, that shop-around option doesn’t really exist for residential customers, because there are few bidders for their relatively low-volume needs, but has had an impact on business and manufacturing in the state.

Deregulation also has protected all consumers from paying for bad investments in power-generating plants.

The second option would be for Maine’s transmission and distribution utilities, including Central Maine Power and Bangor Hydro Electric, to form an Independent Transmission Company that would develop, maintain and manage access to Maine’s transmission system. Utilities could again construct, own and operate power plants, according to the report.

The downside is an independent Maine system would be expensive and, perhaps, risky to start up; could chill in-state investment of independent power production; would inhibit competition on energy prices; and would expose consumers to stranded costs or risky investments in power generating facilities, the report says.

The third option is for Maine to join with New Brunswick and possibly other Maritime Canadian provinces.

According to the report, the New Brunswick System Operator would perform joint dispatch of the bulk power system for the region; transmission systems would be jointly planned; there would be a common energy market relying on a hub located in New Brunswick; and a state-regulated entity would supply Maine consumers.

The Maine/New Brunswick option would allow the consolidated region to develop and transmit diverse resources in a coordinated way. This option would also allow Maine to remain part of a larger market, but one in which Maine would be a more prominent player and, thereby, could better protect consumer and state interests, the report says.

As with the Maine Independent Transmission Company option, the Maine/New Brunswick option would involve new structures and agreements, and is therefore a risky and potentially costly venture, according to the report.

The report says the New England market will still dominate prices so it is unlikely that moving from the status quo to the Maine independent or Maine/New Brunswick alternative would have any appreciable impact on the cost of electric energy to Maine consumers.

The savings would be in the transmission costs that Maine consumers would not have to pay for other New England states.

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